- USD/CAD traded with a positive bias for the third day in a row, rising to multi-year highs.
- The central bank's sharp interest rate cuts and bets on a modest fall in oil prices have weakened the loonie.
- Ahead of Wednesday's U.S. consumer price index and central bank decisions, the U.S. dollar's price movements have been subdued, at the upper end of the currency pair.
The USD/CAD pair hit its highest since April 2020 in Asian trading on Tuesday, but the buying did not continue and the pair remains below the 1.4200 mark. Meanwhile, the near-term fundamental backdrop appears to be tilted in favor of bullish traders, suggesting that the path of least resistance for spot prices continues to trend higher.
The Canadian dollar (CAD) continued to be weighed on by expectations that the Bank of Canada (BoC) will make a deeper interest rate cut on Wednesday, supported by a rise in the domestic unemployment rate in November. Separately, a slight drop in oil prices has weakened the commodity-related loonie, providing a tailwind for the USD/CAD pair, but the lack of continued buying in the US dollar (USD) is holding back its upside.
The US Nonfarm Payroll (NFP) report released on Friday reaffirmed the view that the Federal Reserve will cut interest rates in December. As a result, US Treasury yields continue to fall near their October lows, and the post-NFP recovery in the US dollar is limited to almost a month. However, expectations that the Fed will become less dovish should help limit significant losses for the USD and provide some support to the USD/CAD pair.
On the other hand, traders may hold back on aggressive bets in the face of key US macro indicators and central bank event risks. The US Consumer Price Index (CPI) report is scheduled for release on Wednesday and should provide hints about the Fed's rate cut path to boost demand for the US dollar. In addition to this, the BoC policy decision, also on Wednesday, will determine the next leg of the direction of the USD/CAD pair.
economic indicators
Central bank interest rate decisions
of bank of canada (BoC) announces interest rate decisions at the end of its eight scheduled meetings per year. If the BoC determines that inflation is above target (hawkish), it will raise interest rates to reduce inflation. This is bullish for the Canadian dollar, as higher interest rates will increase foreign capital inflows. Similarly, if the central bank determines that inflation is below target (dovish), it will lower interest rates to give Canada's economy hope that inflation will pick up again. This is bearish for the CAD as it inhibits the inflow of foreign capital into Canada.
Next release: Wednesday, December 11, 2024 14:45
frequency: irregular
consensus: 3.25%
Previous: 3.75%
sauce: bank of canada
